AVI: Consumers feel the pinch

Johannesburg - Food group AVI Limited (AVI) on Monday reported an 8.8% rise in diluted headline earnings per share from continuing operations to 171.5c for the year ended June 2009 from 157.6c a year ago.

A final dividend of 52c per share as declared, bringing to total dividend to 88c per share - up from 80c a year ago.

Revenue from continuing operations was up 12% to R7.5bn and operating profit from continuing operations grew 14% to R908m.

AVI said it has delivered solid earnings growth and maintained a strong balance sheet despite the challenging environment with both increasing pressure on consumers' disposable incomes and high costs of key raw materials.

Cash generated from operations amounted to R1.1bn and net debt has reduced to R547.7m at the end of the year from R724.4m a year ago.

In addition to the sound financial performance and more relevant to the group's longer-term prospects, good progress was made across many operational areas which has strengthened the competitiveness and relevance of our key brands to consumers.

Growth in demand for the group's food and beverage brands slowed progressively through the year, ending the year at levels similar to a year ago in most categories. The personal care category continued to perform strongly with AVI's brands well positioned to gain support from consumers in these leaner times while overall demand for AVI's premium footwear brands was lower than last year but remains sound for its core brands.

Efforts to disinvest from the Argentinean hake and shrimp operations conducted by Alpesca sa, a wholly owned subsidiary of Irvin and Johnson Holding Company, were frustrated by reduced access to funding for prospective purchasers caused by the global liquidity crisis. The board remains committed to disinvesting from this asset and believes that improving global liquidity will assist in achieving a disposal during the next year.

Alpesca is classified as a discontinued operation in the results. The shrimp operation has been impaired in recognition of the possibility that the disposal of these assets may not recover the full carrying value.

AVI said it incurred costs of R6m related to the unsolicited approach by Tiger Brands.

Looking ahead the group said despite lower interest rates it believes that it is likely that consumer demand will remain muted in the first half of the new financial year but would hope to see some improvement in the second half.

In addition I&J, which is geared to export volumes, international prices and foreign exchange rates may not deliver the same level of profit in the year ahead if current exchange rates and export market demand persists.

However, AVI's diversified market-leading brand portfolio is well positioned to continue providing a strong value proposition to consumers during tough times.

"This strength combined with the prospect of further benefits from lower commodity costs, our ongoing focus on yields and cost savings, as well as improved innovation, should enable AVI to compete effectively for market share and sustain our growth ambition in the current climate," AVI concluded.

- I-Net Bridge